Can Your Heir Afford to Inherit Your Home?

Real estate inheritance can come with costly surprises.

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There’s a significant transfer of wealth about to take place. According to Fiducient Advisors, $84 trillion will move from baby boomers, and of that amount $72 trillion will go directly to heirs. And according to Mass Mutual, about 24 percent of this wealth will be tied to real estate.

Although real estate appears to be a great way to pass on wealth, it presents challenges for some heirs. For example, according to LegalZoom, 42 percent of younger Americans say they wouldn’t feel financially prepared to keep and maintain real estate.

Americans Concerned About Real Estate Inheritance

Although attractive on the surface, many Americans aren’t prepared to maintain real estate. Top concerns, according to LegalZoom, include:

• Property taxes (20 percent)
• Maintenance costs (20 percent)
• Existing debt tied to property (12 percent)
• Legal complexities (11 percent)

Property taxes may be reassessed at the current market value after an owner’s death. This could potentially trigger a steep tax increase.

Even if the heir doesn’t plan on living in the home, utilities must stay on. Cutting them off could result in damage to the property. This could be an unexpected expense. And routine upkeep like lawn care, or major expenses like roof repairs, could be a financial burden.

Homeowners’ insurance is another problem. It will need to be updated after the owner’s death to reflect new ownership. Premiums may increase. This is especially true if it’s going to be unoccupied.

Inheriting a Mortgage

If there is still a mortgage on the property, the heir must deal with it. It will start with them paying the monthly mortgage until the property can be sorted out legally. If they don’t pay, foreclosure may occur.

Once the property is in their name, they’ll have some decisions to make. The heir can assume the mortgage if the lender allows it. The lender may require the heir to apply for refinancing. Or, the heir can pay the mortgage until the property is sold and use the proceeds to pay off the mortgage. If the home has equity, that would go in their pocket.

All of this may be a hardship on the heir, especially if they don’t have the finances to continue paying the mortgage.

Inheritance Taxes May Apply

If the heir does sell the home, they must understand the tax consequences, including possible capital gains tax. This tax is paid on any amount the heir receives that exceeds the home’s original purchase price, known as its tax basis. In other words, they will be taxed on profit.

According to the IRS, the inheritance tax exemption for 2025 is $13.99 million. It is indexed to inflation.

Legal Issues When Inheriting Real Estate

There are some legal issues when it comes to transferring home ownership. It can sometimes lead to expensive and lengthy probate if the bequest wasn’t set up properly. If the property was solely owned by the deceased and not placed in a trust, it will likely go through probate.

Some heirs may not have the money or fortitude to go through probate. And if there is more than one heir, there could be additional legal issues.

A transfer on death (TOD) deed is allowed by some states. It will enable the property to bypass probate and transfer directly to the named individual. When allowed, this is a seamless way to bequeath property.

Another vehicle to bypass probate is to place the property in a revocable trust. Ownership can then transfer directly to the designated beneficiaries without going through probate.

Preparing Beneficiary for Inheritance

The greatest preparation a beneficiary can have is a well-organized plan. Yet, according to LegalZoom, 39 percent of younger Americans have not had conversations with relatives about inheritances.

The owner should discuss their intentions with the beneficiary. At this point, they can determine if the beneficiary is interested in the property and has the financial means to maintain it.

Explain the tax and legal implications of owning a house. The beneficiary should also be aware of what the day-to-day expenses are for home ownership. This is particularly important if the beneficiary is young and has never owned a house.

Inheritance taxes should also be discussed. More than half of younger Americans say they’re not confident in their understanding of how inheritance taxes could affect them. Some states have inheritance tax thresholds that are lower than the federal government’s. So, depending on your state, the beneficiary may have a tax liability. Capital gains tax could also be an issue if they choose to sell and receive a significant profit.

Owners should discuss their own financial situation. Does the home have a mortgage? Are any taxes owed on it? You’ll also want to warn the heir about property taxes.

What If Heirs Aren’t Liquid?

If your heirs don’t have strong finances, you may want to talk about the possibility of selling the house in the future. This is a good option to consider, especially if it’s a second home.

When it comes down to it, a conversation with your heir before bequeathing your house could prevent issues in the future.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.